Why The Periphery Is Crumbling: The Spoils System Is Cracking

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Why the Periphery Is Crumbling: The Spoils System Is Cracking

Instability starts on the periphery and moves into the core.

While it is clear that the instability in periphery nations is arising from dynamics unique to each nation, there is one unifying causal factor: the spoils system in each nation is breaking down.

Every nation-state, from brutal dictatorships to nominal democracies, ultimately depends on a spoils system that provides the various factions, classes, etc., with sufficient material and status benefits to accept the Status Quo arrangement.

The more a regime relies on oppression for its legitimacy (for example, North Korea or Saddam's Iraq), the greater its vulnerability to erosion in the spoils system, which naturally favor the military and the regime's Elites.

In broad brush, the spoils available for distribution are the surplus generated by the national economy. In the case of North Korea, this surplus stems from extortion (of donations from other nations), satrapy (free oil from China) and illicit activities (arms sales and counterfeiting). A common source of surplus is oil (Venezuela, Iraq, Iran) or some other desirable commodity.

The vast majority of surpluses outside oil exporting nations have been generated by three factors: cheap energy, rising productivity and the expansion of credit. If we examine periods of rapid expansion and generalized prosperity, we find these three factors were active: cheap energy, rising productivity and ample credit.

Just look at Europe and the U.S. in the 1950s and 60s, Japan in the 1960s and 70s, and China in the 1980s and 90s for examples.

Any reversal in these factors reduces surplus and the spoils being distributed. Sharply higher energy costs crimp profits and cause recessions, stagnating productivity leads to near-zero growth and institutional/state sclerosis and credit contraction leads to recession and the destruction of malinvestments.

Since ruling Elites are by definition constantly picking winners and losers, any Status Quo operated by Elites is systematically malinvesting on a gargantuan scale. This is the ontological imperative of any Elite: skim as much of the national surplus as possible and funnel it to cronies and loyal toadies. The prudent Elites (and imprudent Elites don't last long--the spoils system is quite Darwinian) set aside enough surplus to distribute as spoils, effectively buying the complicity of key sectors, classes, factions, etc.

Thus the default policy of any ruling Elite is bread and circuses: supply the potentially disruptive masses with food and entertainment, and they'll continue their grudging support of whatever arrangement is supplying the bread and circuses.

Any mob that appears threatening can be dissipated with a "whiff of grapeshot."

In the U.S., the spoils system is almost unlimited: corporate welfare for capital, food stamps and SSI disability for the lumpenproletariat, big-bucks jobs as water-carriers for the Elites for technocrats in the State, finance, think tanks, elite universities and Corporate America sectors, a variety of quasi-secure lower-level positions as enforcers, lackeys, apparatchiks and factotums and a smattering of tax subsidies (mortgage interest deduction, etc.) to placate what's left of the non-state-dependent middle class.

The spoils system is not only the foundation of every Elites' political legitimacy, it is the thin layer of plaster that covers all the longstanding ethnic, regional, linguistic, religious and political fault lines that run beneath current nation-state arrangements.

As noted in yesterday's entry Ukraine: A Deep State Analysis, numerous national borders were drawn after World War II (1945) with little regard for historical divisions between various groups or preceding borders.

Entire nations were penciled into existence by Imperial diktat in complete disregard for existing historical groups--Iraq and Syria being just two examples of many.

As long as the stick of repression and the carrot of the spoils system were sufficiently persuasive, the tectonic plates beneath the regime were masked. But once the spoils system and the machinery of suppression crack, the old rivalries arise anew.

The spoils system can crack for two reasons: either the national surplus declines so there simply isn't enough spoils left to keep everyone placated, or the spoils diversion to the Elites and their cronies exceeds the tipping point of legitimacy.

Greece and Venezuela are examples of the first dynamic, and Ukraine is an example of the second dynamic. Greece essentially funded its vast spoils distribution system with borrowed money. When the regime's free-money machine finally broke, the spoils system crashed along with the legitimacy of the Status Quo.

Venezuela is suffering a similar crash, based not on a withdrawal of credit but on the current Elites' destruction of the nation's oil industry and what was left of its productive private economy.

In Ukraine, the plundering of the national surplus by oligarchic Elites finally exceeded the populace's threshold of legitimacy, and once the armed forces and police refused to murder their cousins, brothers, nieces and nephews in the streets, the Status Quo arrangement collapsed.

Now that the spoils system has crumbled, all the historical tectonics and fault lines are emerging in full force. the same can be said of Iraq and many other inherently unstable nation-states/regimes.

Why is the periphery crumbling? It's simple: the conditions that enabled rising national surpluses and the distribution of spoils is breaking down for three reasons:

1. Energy is no longer cheap (compared to past prices)

2. The low-hanging fruit of higher productivity has all been plucked

3. The free-money flood of cheap, limitless credit is drying up

As regimes find surplus and credit are both contracting, their ability to placate every key group with spoils is also declining, and the conflicts between them can no longer be patched over with bribery or brutality.

Instability starts on the periphery and moves into the core. I have covered this in depth a number of times:

Instability Start on the Margins (October 31, 2013)

The Core-Periphery Model (June 11, 2013)

EU Leaders Throw Europe a Plutonium Life Preserver (October 27, 2011)

Everywhere, the instability from a failing spoils system is seeping from the periphery into the core: the E.U., the U.S., China and India. Two Powder Kegs Ready to Blow: China & India (January 23, 2014)

This erosion of the spoils system has a peculiar characteristic: once the old spoils system cracks and collapses, it cannot be put back together. A new arrangement arises, despite the best self-serving efforts of the current Elites.

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walküre's picture

Nevermind Greece, Venezuela or the Ukraine.

US living standards were funded by exploitation of low hanging fruits. The spoils are gone and the US living standard collapses. Without the Dollar hegemony or the military to enforce the trade, the living standard would have never gotten as high as it did.

Surely, you didn't think it was American ingenuity or a certain deity's blessing upon this land that made America richer than any other nation?

Ident 7777 economy's picture

EPA regs, govt-imposed business regs, taxes, govt requirements for hiring and firing personnel ... it all ties up MANPOWER and RESOURCES. Eventually an EROI equivalent is reached here too.

walküre's picture

The paper economy that adds absolutely zero value but increases federal and state budgets which are financed by more and more debt. Nice gig. Let's see how much longer they can afford to keep it going. Nasty sideeffect of the fake paper economy is that it lifts valuations, demands and entitlements. Good luck balancing those when the cost of running the show (energy prices) are going up with scarcity.

UselessEater's picture

true, applies to most nations.... as our regulations soared (favouring big bus.) so did our entitlements in Aust they got so stupid our mining boom surplus went on value adding benefits like a $3000 baby bonus for new parents...how they come up with all this sh*t constantly surprises me and then everyone bitches about deficits while compaining they deserve more benefits because they are a special interest group of some sort, each new "benefit" needs a new govt department/office/budget...round and round we go

Antifaschistische's picture

"Instability starts on the periphery and moves into the core."

I don't mean to split hairs, or tangle in meaningless semantics....however, this should say

"the instability starts at the core...and gets compounded at the periphery"

I believe suggesting that that the "core" (US, Germany, China) will ultimately be infected by the disease at the periphery is backwards.   WE are the carriers in this economic pandemic, WE are the instable and WE are infecting the weak first.   

To the weak economies....we can apologize with humility knowing that we too will not defend against the infection much longer.


john39's picture

are you implying that God doesnt sanction exploiting your fellow human beings? well, bankers dont have that issue.  in fact, for their god, exploitation is virtue.

skwid vacuous's picture

I need to re-read my Talmud copy again, been awhile

Flakmeister's picture

Go fuck yourself... Asshole...

Colonel Klink's picture

Awww, Flakemanure is offended.

Flakmeister's picture

No, I ain't offended in the least...

I just have no problem with telling trash exactly what they should do...

skwid vacuous's picture

do you have a substantive retort re: the Talmud? or just gutteral name-calling?

skwid vacuous's picture

that's what i expected, alot of nothing - or maybe too busy trying to get me banned from ZH, you seem to be the self-proclaimed expert at that...

Flakmeister's picture

Naw, you are simply a hateful little shit playing for greenies...

Then again you could surprise us...

skwid vacuous's picture

wow, more curses and put downs the last refuge of an angry, defensive, guilt-ridden fuck, you dragged me down to your level congrats 

Flakmeister's picture

You pushed the down button on the elevator a few posts ago, I only pointed out what floor you were going to....

skwid vacuous's picture

Still no rebuttal or debate, just ad hominem attacks... let's start with - what does the Talmud say about goyims? maybe there is no Talmud, just made up by Rense and David Irving? Or, there is a Talmud but it really doesn't say to lie to, steal, and cheat the goyim is ok? that part was made up by rabid "anti-semites" etc.  ...

Flakmeister's picture

Save your faux outrage...

If you can't handle beeing a called a piece of shit, or a cocksucker or a cunt, ZH is clearly not for you...

BTW, assuming you are Christian, reconcile the intent of your statement with the Sermon on the Mount...

Do you want a link or can you find it yourself?

Flakmeister's picture

Ahh Klinkie, are you still licking your wounds over this:

Starting here: 

and ending here:

Klinkie ran like a spooked bunny when realized what a fool he was...

Colonel Klink's picture

Hahahaha.......Hahahahaha..... nope no running here.  Just get tired of debating something we disagree fundamentally on.  I don't have endless time to waste on you.  I actually have a life and fun things to do away from the computer.

Good day Flakey.

Flakmeister's picture

Yeah, good day indeed...

Anytime you want your ass handed to you again in a debate let me know...

Colonel Klink's picture

Start upping those meds to cure your delusion there pal.

pods's picture

Who pissed in your Cheerios flak?


Flakmeister's picture

Niemoller would know exactly what I am referring to....

Anybody else here have the balls to call it out and explain it as clearly as I did here

Yeah, someone one pissed in my cornflakes, and tomorrow it may be you that gets your cornflakes pissed in...

And if the number of up/down votes on that link doesn't tell you how far this site has slipped, you haven't been watching very closely....

pods's picture


"Just remember I'll will be watching you and you had better not slip up in the least fucking way,... 

I've gotten pieces of shit like you flushed from here before..."

I'd fuckin junk ya too.  



skwid vacuous's picture

must be the new anti-anti-zionism policy, or something like that, he pleads to

Flakmeister's picture

And Pods, that would be your right....

BTW, do you think JCB was being forthright? 

Rafferty's picture

Jesus, Flak is one angry little hasbara today........

Flakmeister's picture

Hey, was that a mouse I just heard?

nightshiftsucks's picture

Flaks a little bitch,cry for me flak because it brightens my day.

dontgoforit's picture

What puss-in-boots 'walkure' says kind of says what the U.S. did in the last 100 years to keep the world free doesn't amount to a hill of beans.  I believe the sacrifices made by the U.S. to stave off the wars of evil were both brave and extraordinary.  The people of the U.S. come from everywhere; their love of freedom too, comes from everywhere.

walküre's picture

Thomas Paine would give you the finger.

walküre's picture

The US was the biggest benefactor of the "spoils system" the author is describing. That is my point.

Feel free to praise whatever tickles your fancy but when it comes right down to it, the "spoils system" is done and no prayers will bring it back.

Absolute hegemony and control of all aspects of the global energy supply is what created the massive wealth in the US, nothing else. Now that energy is no longer cheap, it is harder and harder to keep that market under control. It costs more and more to supply the world and the world is less and less able to afford it!

Living standards in the US are going down and down. I'm talking broad wealth and a rich middle class which lifted this country to the top of the pile.

akak's picture


Absolute hegemony and control of all aspects of the global energy supply is what created the massive wealth in the US, nothing else.

That is a narrow and highly biased argument.  Also untrue, as the USA acheived great growth and prosperity (for its time) by 1900 without being either an energy hegemon or indulging in a widespread spoils system as seen today.  That prosperity was the result of a much less intrusive and oppressive government, i.e., liberty and the free market.

thamnosma's picture

Very much agree.  His analysis was very poor.  The country also has/had vast natural resources of every type along with a large swath of the most productive farmland on planet earth.   Most other countries have a serious deficit in one or more basic necessities but have a surplus of a product or two, e.g. oil.

walküre's picture



You gots Obama, a FSA and an army of crooks on Wall Street and DC.

Let's get real for fucks sake.

fonzannoon's picture

we gots the MIC and banker cabal. Apparently that counts for a lot. I'm not proud of it. But it's reality

walküre's picture

The worst part is you can't get rid of it. Make no mistake, nobody likes the US. Those that pretend they do, are doing so with an ulterior motive. I stick to real Americans who feel no allegiance to the federal concept.

walküre's picture

So did many other countries before the Fed bankers instigated two world wars to seize absolute power for the US across the globe. Ah, I'm sure the US just happened to be on the winning side 2x by coincidence and ended up as the world's leading superpower just because.

How much blood had been spilled prior to 1900 inside the continental US and after 1900 outside the US just for the purpose of securing oil supplies and supply lines?

The periphery is crumbling because ROME has gotten too fat, lazy and corrupt. This time the moneychangers are making sure the fake and diluted currency gets accepted and no alternatives are allowed.

But there are sideeffects as yields cannot be cheated no matter how much alchemy the Fed thinks they can master.

NoDebt's picture

The US spilled blood inside it's own borders prior to 1900 over oil?  I'm not following you there.  That was the era of steam engines and COAL.  Coal that we still have so much of you can RIGHT NOW TODAY pick it up off the ground in many places in western PA and West Virginia.  It's just that it's an environmentally illegal energy source now.  Which puts more demand on all other energy sources, including oil.

walküre's picture

Blood for oil and blood for railroads

Late 1900s was also the time Rockefeller and Standard Oil emerged and created wealth of unfathomable proportions at that time.

Vanderbilts made a fortune in railroads.

Both families became most influential in shaping America's history going forward.

It's ok.


ParkAveFlasher's picture

You might say that the US invented global energy hegemony.

Flakmeister's picture

Nothing that has not been seen before, compare it with Dutch mastery of wind and peat, followed by the ascendancy of Britain associated with coal...

In each case, they were the the leading economic power because they were the first to exploit a new energy source...

Admittedly the US made it truly global with oil...

The lesson is that whoever masters solar is the natural heir to US. Clearly there is more to it than that, but that is the basic "rhyme"...

Oh, and China has clearly read the playbook...

Raging Debate's picture

Walkure - I agree. Rome has gotten fat and opulent by exploiting the globe including our own citizens. A book I read about the railroad era after the Civil War was called the Era of Mean.

The US has done a lot of good in this world despite the flaws and mistakes. But lately, a small cabal has destroyed Uncle Sam. The brand is dead. Only reorganization can follow and such will be a bit painful. I like Flak's broader view as well but he falls for the name calling, demonstrating he/she has room to grow. Then again, don't we all?

graneros's picture

"That prosperity was the result of a much less intrusive and oppressive government, i.e., liberty and the free market."

You may fly the Jolly Roger but methinks you are a far more educated and refined Captain than the skull and crossbones signify.  I would be honored to be a crewman on your ship in any open berth.

walküre's picture

Prosperity to be free...

And a few days later the December 24, 1913 New York Times carried a front page headline that read "WILSON SIGNS THE CURRENCY BILL!" Below it, also in capital letters, were two further gems, "PROSPERITY TO BE FREE" and "WILL HELP EVERY CLASS."


Flakmeister's picture

The US benefitted from unfettered access to a continents worth of resources and by WWI they were the largest extractors of oil in the World...

akak's picture

That is a very common if simplistic and blinkered 'analysis', Flak, and you know it.

Natural resources, by themselves, mean little to nothing in regards to fundamental national prosperity without also considering the cultural, ethical and legal foundations which truly support any economy. 

By your implication and 'logic', Japan should be at or near the very bottom in terms of national prosperity, and Congo should be at or near the top.

Flakmeister's picture

Of course, Rule of law makes a big difference as well, that is what does the Congo in...

The Industrial Revolution being a one time event is also a big part of the fast growth then...

So how would you qualify the meteoric rise of Japan post Perry and post MacArthur? The state was clearly behind that...

And last time I looked, Japan was not looking too hot...